Stage 1: Vesting
FMV on the vesting date lands on your W-2 as ordinary income. Federal, state, and FICA all apply.
Two stages, two rates
Stage 2: Sale within a year
Short-term capital gain, taxed at your ordinary income rate — up to 37% federal.
Stage 2 alt: Sale after a year
Long-term capital gain, taxed at 0%, 15%, or 20% depending on income.
Two-part tax event
Powerful wealth builder — with a two-stage tax bill
Restricted Stock Units (RSUs) can be a powerful tool for building wealth, but understanding how they are taxed is essential for maximizing their value. While RSUs are taxed as ordinary income when they vest, any gains or losses that occur after vesting are subject to capital gains tax. Whether that tax is short-term or long-term depends entirely on how long you hold the shares after they vest.
01At vesting
What happens at vesting?
Ordinary income
On W-2
When your RSUs vest, their fair market value (FMV) is added to your W-2 as ordinary income. You pay federal, state, and FICA taxes at that point, regardless of whether you sell the shares or hold onto them.
However, if you decide to keep the shares instead of selling them immediately, any change in the stock’s price after vesting becomes a capital gain or loss when you eventually sell.
02The one-year line
Short-term vs. long-term
One year and one day after vesting is the line between short-term and long-term capital gains — and the rate difference is large.
Sell within 1 year
Short-term capital gains
Up to 37%
Short-term gains are taxed at the same rate as your ordinary income — as high as 37% at the federal level depending on your tax bracket.
There’s no tax advantage to selling RSUs quickly after vesting from a capital gains perspective. You’ll essentially be taxed twice at ordinary income rates — once at vesting and again on any additional gain if the stock price has increased.
Hold > 1 year
Long-term capital gains
0% · 15% · 20%
To benefit from long-term capital gains tax rates, you must hold the RSU shares for more than one year after they vest. Rates depend on your income level.
This can significantly reduce your tax liability if the stock appreciates in value during that holding period.
03Strategy
Planning your strategy
Deciding when to sell your RSU shares depends on a variety of factors, including your financial goals, risk tolerance, and expectations for the company’s stock.
If you believe the stock will continue to rise, holding for more than a year could yield tax savings through long-term capital gains. However, if the stock is volatile or you need liquidity, selling sooner — even at short-term rates — might make sense.
Craft a strategy that balances tax efficiency with financial security
Consulting with a tax advisor can help you weigh sell-at-vest, hold-and-sell, and diversify-vs-concentrate decisions. Call (212) 641-0673 or send the contact form.
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RSU holding strategy done right
Time your RSU sales with intent, not by accident
Whether you hold for the long-term rate or sell at vest to diversify, the decision should be deliberate. Call (212) 641-0673 or send the contact form. No charge for the conversation.
Reviewed by George Dimov, CPA, New York, NY. Serving clients in all 50 states, 15+ years advising employees on equity compensation and stock-based tax planning. President of George Dimov, CPA, a New York City firm serving clients across the five boroughs and nationwide.